Influence of budget participation and leadership style against rebudgeting on work unit of apparatus

Abstract

The purpose of this research is to test influence of Budget Participation and Leadership Style against rebudgeting on the work unit of regional apparatus (SKPD). Data were collected using questionnaires filled out by respondents from SKPD at 18 (eighteen) local government regencies/cities in Aceh, Indonesia for 110 (one hundred) questionnaires out of 150 were distributed. The results showed that Budget Participation and Leadership Style had a positive influence on SKPD rebudgeting. The finding of this research is to find that agency problems in regional budgeting have a bearing on leadership. In addition, the leadership style of the regional head as the regional financial authority is related to the process of budgeting based on the performance-based budget of local government and should be used on the performance indicators in the proposal of every program and activity. Corresponding author: Afrah Junita Email addresses for corresponding author: afrahjunita77@gmail.com First submission received: 14th February 2018 Revised submission received: 9th May 2018 Accepted: 22nd May 2018 Introduction The rebudgeting is an effort by the local government to adjust the financial plan to real conditions in the field and improve the performance of the work unit (agencies). The process of preparing for rebudgeting is in principle no different from the initial budget process, both in terms of substance and politics (Anessi-Pessina, Eugenio, M. Sicilia, & I. Steccolini, 2012; Nurzaimah et al., 2016; Yahya et al., 2017; Nasir et al., 2017; Hasan et al., 2017 & Azlina et al., 2017). The resulting budget document is the most important document in government as it becomes the foundation in the administration of government functions and public services (Rubin, 2006 & Pohan et al., 2018). As a plan, the budget reflects development priorities, public alignments, and the power of decision-makers (budget actors), which will be implemented during one fiscal period (Wildavsky, 1992; Muda et al., 2016; Lubis et al., 2016 & Tarmizi et al., 2016). Issues during the implementation of the budget in the first half of the year and the examination outcome of the results of the previous year's budget execution led to the need for adjustment during the year. This change occurs due to developments that are not in line with assumptions in budget policy, such as the occurrence of exceedances or non-achievement of projected regional revenues, allocation of local spending, sources and the use of predetermined costs (Abdullah & Junita, 2016). If so, the regional head formulates the matters that result in the APBD (local government budget) amendment in a general policy draft of APBD amendment as well as the temporary priorities and ceilings of APBD amendment. Amendment to APBD is also called revised APBD (APBD-P) which is a necessity when Journal of Business and Retail Management Research (JBRMR), Vol. 13 Issue 2 December 2018 www.jbrmr.com A Journal of the Academy of Business and Retail Management (ABRM) 275 assumptions and other uncontrollable factors are not as predictable from the start, that was when the agreement on the policy and priorities of the APBD is signed. Draver and Pitsvada (Forrester and Mullins, 1992) states that rebudgeting is a means for legislatures, executives, and bureaucrats to tailor each other's agenda, so that in the end there is always a consensus reached. Therefore, policy, direction and strategy in budgeting become the arena of power struggles, in which each party seeks to fulfill its self-interest, thus often sacrificing the public interest (Abdullah, 2012). Considering that the budget is the most important document in government financial management, the discussion of the critical success factors in its compilation, implementation and accountability has not been completed over the last few decades (Abdullah, 2012). Aspects of behavior, politics, social and economic issues become important issues in the determination of performance targets and budget allocations to achieve these performance targets, both discretionary and non-discretionary (Anessi-Pessina, et al., 2012). The budgeting process contains high political nuances (Wildavsky, 1986; Rubin, 2014; Muda and dharsuky, 2015; Purwanto, 2016; Badaruddin et al., 2017 and Erlina et al., 2017), opportunistic behavior (Moe, 1984; Abdullah, 2012; Forrester, 2002) and participation at the time of preparation of the budget are some of the ways to solve the problem (Mardiasmo, 2002; Marlowe & Potillo, 2006; Im, et al., 2014) so public trust to the government could be better (Gibson, 1995). Participation in the rebudgeting process is lower so the transparency of the budgeting process also becomes lower which then creates a bias in resource allocation decisions within the government budget (Larkey dan Smith, 1989). The bias in determining budget can be caused by bias in income revenue forecasting (Cassidy, et al., 1989). The agency problem in regional budgeting has to do with leadership (Moe, 1984; Abdullah,2012 & Erlina et al., 2017). The existence of information asymmetry, decentralization of authority and representational politics cause the leadership style to have implications on the accuracy of budget estimates (Kyj dan Parker, 2008). Aspects of leadership play an important role in achieving performance targets in government, including budget performance (Forrester & Adams, 2014). Leadership styles are linked to policies, priorities for setting performance targets, and budgeting processes (Moynihan, 2004). Leadership in public budgeting is embedded in the executive as well as the legislature (Meier, 2000). This research would like to analyze whether budget participation and leadership style can influence rebudgeting. Literature Review Rebudgeting on Local Government Changes or revisions to the budget that are being implemented in the current year are a common phenomenon in government budgeting. Formally, the preparation of the budget and its amendments are regulated in legislation relating to state and regional finances. Such arrangements are binding and their implementation will be monitored and accounted for through financial reporting and performance (Halim & Abdullah, 2006). However, in practice this adjustment is not always in accordance with the ideal concept because of agency problems to budget actors (Halim & Abdullah, 2006). Rebudgeting reflects a commitment made at different times (Wildavsky, 1988). Comprehensive understanding requires a shift to the focus of budget analysis, such as addition and deficiency of budgeting, and other possible revisions as a precautionary act to critical budget(Axelrod, 1988; Wildavsky, 1988). Rebudgeting is made to adjust between target and allocation with the latest developments in the field. Adjustments are made due to changes in assumptions that lead to the need for changes in the revenue and expenditure estimates, so that pre-determined targets can be achieved as expected (Bland & Rubin, 1997; Dougherty, et al., 2003; Forrester & Mullins, 1992). Changes to each component of APBD have different backgrounds and reasons (Abdullah & Nazry, 2014). Draver and Pitsvada in Forrester and Mullins (1992) stated that rebudgeting is a means for legislatures, executives, and bureaucrats to tailor each other's agenda, so that in the end there is always a consensus reached. Therefore, policy, direction and strategy in budgeting become the arena of power struggles, in which each party seeks to fulfill its self-interest, thus often sacrificing the public interest (Abdullah, 2012). The process of discussion and the determination of rebudgeting is relatively more closed from public observations so that it contains a relatively large agency problem (Abdullah dan Nazry, 2014). The process of rebudgeting in principle is no different from the initial budget (Anessi-Pessina, et al., 2012). Bland & Rubin (1997) in Abdullah & Rona (2014) mentioned that budget performance will influence the Journal of Business and Retail Management Research (JBRMR), Vol. 13 Issue 2 December 2018 www.jbrmr.com A Journal of the Academy of Business and Retail Management (ABRM) 276 revision of next period's budget. Rebudgeting becomes an arena for opportunistic behavior of budget actors (Abdullah & Rona, 2016). The Influence of Budget Participation on Rebudgeting Participation is an important concept in budgeting, both in the business sector and the public sector. Participation has an influence on effectiveness and efficiency in budgeting. Participation is seen as a way to increase trust in government about activities and programs of the government (Frisby & Bowman, 1996; King, Feltey & Susel, 1998; Lubis et al., 2017; Tarmizi et al., 2017; Sihombing et al., 2017; Sirojuzilam et al., 2017 & Muda, 2018). Participation in budgeting has an influence on commitment to budget goals. This view is consistent with Shields and Shields (1998) in Chong and Chong (2002), who argued that participation enhances subordinate trust, control, and ego involvement with organizations, leading to resistance to changing commitment to budget goals. Budget participation motivates subordinates to accept and commit to budget goals (Argyris 1952; Becker and Green 1962; Hofstede 1968). Hofstede (1968) argued that participation influences commitment through the internalization of goals. Research that supports a positive relationship between participation and commitment to budget goals (Locke, 1968; Erez et al, 1985; Erez dan Arad, 1986). Locke (1968) in Chong and Chong (2002) argued that the direct influence of participation is subject to the decisions reached. Participation in the budgeting process has become a major topic in the field of public administration and public policy research. Requests submitted by subordinates to the allocation process should be appropriate to the needs of government agencies, projects and other recipients (Sirojuzilam et al., 2016 and Dalimunthe et al., 2016). The quality of the